November 24, 2022

What Netflix changing their subscription model says about app development

We all know the classic joke about Netflix, where one person pays for the Netflix subscription and everyone else watches it for free.

Well, it turns out that Netflix knows that too. They know alright. It is part of the motivation behind their latest change in subscription tiers.

Netflix Twitter post

Netflix has introduced a new subscription tier, “Basics with ads.” This follows Netflix recording its first EVER loss of subscribers during January and March since 2011. Considering it is 2022, this is super impressive if you ask me.

The new tier is $6.99 per month and will feature a sort of hybrid streaming model where users will watch a few ads every hour, at the beginning and end of their shows.

Personally, I think this is an amazing addition to their subscription services. Netflix is traditionally a higher price point than other streaming services and they have always advertised themselves as a simple but premium product.

Offering a lower price point with the addition of ads is a great business move for Netflix. It means they can capitalise on both revenue streams from advertisers who want to display their ads through Netflix, and now users that they may have previously missed out on because of the price. It really shows how agile the software and Netflix are. Introducing an ads platform would have required their development team to work around the clock.

The story of Netflix and how it became a software company

Netflix started its journey in 1997, not as a software product but as a business that delivered DVDs. Around Y2K, DVDs and DVD stores were big businesses. It was a part of western culture. Netflix grew over the period of a few years through this business model, increasing its subscriber base.

In 2000, Netflix actually approached Blockbuster and offered to sell their business for $50 million USD. However, Blockbuster rejected the offer. Netflix transitioned their subscriber base to a digital platform and started the streaming movement. As of November 2022, Netflix is worth $127.58 billion USD.

Netflix does their user research

Something we talk about a lot at Moonward is the difference between a product that is in beta testing and a product that is in production. When you have an app in a live environment with users on it, you are existing in a completely different space. Because people use things differently than how you expected, or how you planned. They can make suggestions that can be super valuable to the progression of your product. They can expose things that you thought were a core feature of your service offering, but it turns out it’s not used at all.

I’m sure what Netflix has found through user research, is that people are cool with ads. 

Afterall, as a society, we are exposed to ads on a daily. Through social media, traditional media and other streaming platforms. 

When you have an app live, you will receive user feedback through either analytics or direct messages. This leads to our second point, understanding users. 

Netflix implemented their findings from the user research

Netflix CEO, Reed Hastings, said “I am a big fan of consumer choice… Allowing consumers who would like to have a lower price, and are advertising tolerant, get what they want. It makes a lot of sense.”

At the end of the day, the value of your app is in your users. Making their experience easier and offering them a product that keeps them engaged and consuming content is what will keep you competitive. 

Netflix new subscription tier

If you are a subscriber of Netflix, what does this mean for you

For existing Netflix customers, nothing will change. You would need to go into your subscription settings to adjust this. For people who have maybe left Netflix and are thinking about signing up again, Basic with ads is now an option. Here are the subscriptions tiers available for Netflix users:

- Basic with ads: $6.99 AUD

- Basic: $10.99 AUD

- Standard: $16.99 AUD

- Premium: $22.99 AUD

If you want to read more about what each plan gets you, you can do so here.

If you have a big, hairy, ambitious app idea, book in for a free 30-minute strategy call.

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